‘A purely north-south corridor is not going to be enough’

Andrew Small is a senior transatlantic fellow with (and founder of) the German Marshall Fund’s Asia Program. A renowned China expert, Small studies China’s relationships with the US, Europe, South Asia as well as its economic and foreign policies. Previously, he worked as the director of the Foreign Policy Centre’s Beijing office, as a visiting fellow at the Chinese Academy of Social Sciences, and an ESU scholar in the office of Senator Edward M. Kennedy.

Small has previously testified before the US-China Economic and Security Review Commission and both the Foreign Affairs Committee and the Development Committee of the European Parliament. He is frequently published in renowned journals, magazines and newspapers. He was educated at Balliol College, University of Oxford.

BR Research recently interviewed Small on China’s evolving relationship with Pakistan in the regional context. Small expects the Chinese investments in Pakistan to be more resilient to security concerns now than in the past; he opines that the Hambantota case is a data point rather than a trend while maintaining that the perception that China plans to build military bases through debt-diplomacy is inaccurate. Selected excerpts are produced below:

BRR: You’re a keen observer of Pak-China bilateral relationship. Where does the relationship stand today, in the wake of CPEC as well as US mood souring on Pakistan?

Andrew Small: It’s now a more comprehensive relationship than it used to be, but a more complicated one as a result. When it was entirely security-centric, the China-Pakistan relationship involved a relatively small cast of individuals on the two sides, who shared fundamental views on the strategic purpose of the relationship. China took up very little political oxygen in Pakistan. It was a reliable friend in a few critical areas, principally military supplies, but rather distant.

With CPEC adding a serious economic dimension to the relationship, it brings China much more into day-to-day politics and draws in a considerably wider pool of people in both countries, who previously had very few dealings with each other. It also leaves China far more exposed to internal developments in Pakistan.

The relationship is certainly deeper and broader than it was but there were advantages to the removed, almost sanctified status that China occupied: greater familiarity doesn’t necessarily breed greater affection. Beijing is also very careful about making sure that it isn’t maneuvered into the middle of US-Pakistan tensions – it benefits far more from a healthy US-Pakistan relationship and does not want to be a contributory factor in Pakistan believing that it can comfortably afford to let ties with Washington deteriorate too sharply.

BRR: In one of your recent articles, you mentioned that CPEC is essentially an investment package rather than a serious transit route. This is contrary to what officials in Pakistan and China are talking about. How do you substantiate your claim?

AS: In public, there has long been talk from officials about a transit route, but in private there is much more skepticism, and even more so on the Chinese side. It’s an evocative concept, of course, but the topography of the Karakoram means that it still doesn’t make a great deal of economic sense. It is notable that even though we now have plans running all the way to 2030, there is, for instance, still no pipeline or railway line seriously envisaged. Chinese media outlets have publicly cited their own officials explaining precisely why the costs make it unfeasible.

It’s not that there will be zero transit traffic – there has always been a modest volume when the Karakoram Highway is functioning, and I’m sure it will increase somewhat when the road conditions south of Gilgit are improved – just not very much. It’s more useful to evaluate CPEC on the basis of the projects that are actually happening or in advanced planning than looking at the exciting maps of routes leading to the Indian Ocean. Pakistan has tried to sell its “strategic economic geography” to China for decades – Beijing has never been convinced by this and wants quite different things from the CPEC.

BRR: How do you contextualize the train that left Shanghai and arrived in Tehran four days later, last year? Is that a serious transit route if CPEC is not?

AS: China is genuinely interested in developing alternative transit routes through Central Asia, through Russia, through Myanmar and so on. There is already a significant Chinese pipeline infrastructure in Central Asia, which was established well before the BRI. There are categories of freight for which land routes between China and Europe make economic sense, and there would be even more if some of the logistical constraints – different railway gauges, customs clearance etc. – could be addressed. Some of the journeys that are conducted with great public fanfare are largely symbolic but there is a serious Chinese agenda here.

The problem in Pakistan’s case is just one of difficult geography. There are circumstances in which the effort to overcome those complications might have some economic logic – it will basically involve a lot of very expensive tunneling – but either the Pakistani economy and the economy of western Xinjiang would need to be in a very different place or Pakistan would need to be a transit hub for its immediate region, including India. A purely north-south route is not going to be enough.

BRR: What is your reading on Chabahar being portrayed as a threat to Gwadar?

AS: There is still scope for Chabahar and Gwadar to function in complementary terms – particularly for trans-shipment, given that Gwadar is a deep-water port, with the capability to accommodate larger ships. Chabahar does provide Afghanistan with an alternative access route to the sea, which has already made a modest difference to the country’s level of reliance on Pakistan, but the impact there has so far been more for Karachi than Gwadar. It’s really a matter of choice how Gwadar and Chabahar will relate to each other, though it should be noted that it’s a choice that largely belongs to the Iranian government rather than the Indian government.

BRR: CPEC long-term plan talks about openness and inclusiveness. From your reading of China’s foray into Africa, how open or inclusive has it been there? What can Pakistan learn from Africa’s China experience?

AS: The track-record in Africa is evidently mixed. On the one hand, many African countries appreciated the fact that China treated them as economic prospects rather than aid recipients. They gained additional leverage in dealing with donors – and former colonial powers – who had called the political shots for decades. This mattered – and still matters; for many governments around the world, China provides a means by which they are able to gain greater autonomy in their relations with the traditionally dominant powers in their region. Many countries also benefited from booming commodities prices.

On the other hand, Africa was the location where most of the practices on which we now fault China first played out, and with even less nuance: Chinese workers brought in for projects that could have been undertaken by local employees, extractive practices rather than support to the development of African industry, and so on. China does have different economic needs now – less focused on access to natural resources than it was in the early-to-mid 2000s – and is far more sophisticated in its approach and its political and risk assessments than it was during the early days of its push into Africa.

One general lesson to take is: figure out what you want from China, negotiate hard, and don’t assume that the power differential means that you don’t have leverage when it comes to setting the terms. Some African countries did a better job of this than others. A second: governments alone can’t be relied on; deals with China need scrutiny and pressure from the media, civil society, opposition parties, trades unions, courts and so on. This isn’t about blanket opposition but simply making sure that the terms are economically sound, adhere to certain standards, and are genuinely beneficial for the country.

BRR: How strong-willed are the Chinese insofar as their mega-investment plans are concerned, whether in Pakistan or in Africa? We ask this in the context of security risks facing Chinese working in Pakistan.

AS: China has felt obliged to accept a certain degree of risk with many of their investments, particularly in the energy sector, where they believe that the western majors have carved up many of the best (and safest) prospects already. We’ve seen that everywhere from Iraq to Libya to South Sudan. In many cases, however, Chinese companies are also not keen on having their workers kidnapped or killed, and it can be politically embarrassing when it happens too. There are countries, such as Afghanistan, where there is very little willingness to move ahead with economic initiatives until certain basic security conditions are in place.

In Pakistan, China had tended to stall or withdraw from investments when they faced security problems, particularly during the 2007-09 period, when they were very concerned about Chinese workers and the deteriorating situation in the country more broadly.

A couple of things have since changed. First, during the subsequent decade, the protection measures that were established to address these problems have largely worked. Although there have been incidents involving Chinese, these have involved individuals outside the protection umbrella. Couple that with the overall improvement in the security situation in Pakistan and confidence levels on China’s part has certainly improved.

The second factor is the political salience that China has attached to CPEC and the BRI. The tendency now is to press ahead despite problems rather than looking for excuses to pull out. As a result, I expect there to be greater resilience to China’s investments in Pakistan in the coming years, unless they were to face a number of incidents where they believed that the Pakistani state was no longer doing an adequate job.

BRR: China has also been giving Pakistan loans that are unrelated to CPEC. Globally, does China practice what some skeptics have dubbed as debt-trap diplomacy?

AS: I do not believe that China deliberately tries to get countries into unsustainable debt with a view to extracting political or military concessions when countries can’t repay. Chinese financial institutions do want most of their money back. And the way they handle cases varies – the Hambantota case, even though it is clearly a cautionary tale, is a data point rather than a trend. In many other instances, China has renegotiated the terms of the loans or in some cases even written them off.

The concept of “debt trap diplomacy” also lets governments off the hook for their own responsibility in taking on excessive debt. Sure, some governments may lack the capacity to make adequate economic assessments but most of them know exactly what they’re doing. The debt phenomenon is real: a number of countries are accumulating problematic levels of debt through BRI-related enterprises, a large proportion of which is owed to China.

But the contention that it’s all an ingenious plot on China’s part to trick countries into taking on unviable economic projects in order for them to parley this into land for military bases is just not an accurate characterization of what’s going on. Beijing is looking for economic returns and it gives Chinese policymakers far too much credit to claim that even their poorly-conceived investments and financing decisions are all part of a deliberate plan. Just look at Venezuela as an illustrative example.

BRR: Let’s pivot to the strategic aspects of this relationship. In multilateral forums like FATF and BRICS, we have seen lately the limits of Chinese support for Pakistan. Do you think the bilateral relationship is resilient to weather such strains?

AS: This is not new. The relationship has survived tensions over issues of this sort in the past, whether in the aftermath of the Mumbai attacks or Chinese doubts about Pakistan’s willingness to go after Uighur militants. More generally, there have been periods in which Pakistani perceptions of the backing that China is willing to extend outruns the reality and has to go through a correction.

We are probably in one of those phases now, although plenty of Pakistani officials and experts are very well aware of the limits of Beijing’s support.

BRR: After considerable hostility between China and India, we have recently seen some serious bilateral engagements between the two countries. Will any major rapprochement, if it takes place, come at Pakistan’s strategic expense?

AS: Beijing used to tread quite carefully around India’s sensitivities over its relationship with Pakistan but, particularly since 2015, had attempted to “de-hyphenate”: upgrading its ties with Pakistan on a number of different fronts with very little regard to India’s reaction.

I doubt there will be a “major” Sino-Indian rapprochement and China will not want to do anything that is strategically costly to Pakistan.

BRR: You recently wrote that China and India could also reach an informal agreement over the scope of BRI, given that there is still considerable room for negotiation, even over Indian sensitivities about CPEC. What factors can make that agreement possible, given the issue of disputed territories?

AS: There are plenty of options, even when it comes to CPEC. Projects that are considered sensitive could be reclassified out of CPEC – effectively, this already happened with the nuclear plants, which one would otherwise have expected to be included in the CPEC package when they were agreed. The initiative could be “upgraded” into a broader South Asian growth corridor or Grand Trunk Road corridor or whatever alternative name people come up with. China could commit not to make a significant material change to the status quo in Gilgit-Baltistan, which the existing CPEC plans don’t really envisage anyway. The Chinese side appears to be pretty open to various possibilities if they could figure out with greater precision what India’s objection on the territorial question actually is.

They don’t need an agreement on CPEC though, and I’m not sure that India is willing to get into negotiations on those issues anyway. They can simply agree to cooperate on economic connectivity projects outside the BRI, if a shift in the form allows progress to be made on the substance.

India and China are still going to be competitors when it comes to strategic economic issues but there are certainly areas where the two sides have interests in common: if China is willing to finance infrastructure that serves India’s economic objectives and fulfils certain criteria, India can make it less politically difficult for China to move ahead with those projects than they have in the recent period. That would be the thrust of any informal agreement, whether or not the two sides formally work together on more than a token couple of initiatives.

BRR: Amid the region being pulled in different directions, do you think China can become a force of stability in the South Asia region, by sitting Afghanistan, India, Iran and Pakistan on the same table?

AS: There is a role that China is trying to play in the Afghanistan-Pakistan equation, and in that instance, both sides have an interest in China sitting at the same table. Pakistan benefits from the additional geopolitical and economic clout that China marshals behind it and Afghanistan benefits from being able to exploit some of the differences between the Pakistani and the Chinese position as well as the potential for Chinese economic support.

In the other cases, it’s less clear that anyone – and particularly India – would want to be involved in any attempt by Beijing to act as a “force of stability”; they see a greater Chinese role as highly problematic. The various parties will all be at the SCO summit, of course, but Beijing doesn’t see the organization playing any serious role in helping to improve ties between India and Pakistan; they are rather concerned that those tensions will undermine the organization and were not very enthusiastic about the two joining as members.

BRR: In the political dimensions of BRI analysis, Chinese scholars are mainly writing at the nexus of BRI and Middle East, leading one to believe that China is seeking stronger ties with the Middle East. Can China do so while maintaining strong economic relationship with Iran at the same time?

AS: China has been very scrupulous about maintaining a balanced set of relations across the Middle East – it wants to maintain healthy relations with Iran, Saudi Arabia, Israel, Egypt and Turkey at the same time and has managed to do so largely by keeping out of the most contentious political and security matters. For now, that’s not going to change much. Although China has been deepening its economic relationship with Iran, it has also been doing so with Saudi Arabia, and the Saudis – despite trying – have never managed to convince Beijing that China should rebalance definitively away from Iran for its energy needs.

BRR: But the US has recently exited from the JCPOA (the Iran nuclear deal), putting its European allies in a fix. How do you think this will affect the Chinese calculus in the Middle East?

AS: In the short-term, China has the opportunity to take advantage of the fact that various European companies – such as Total – are already pulling out of Iran for fear of US sanctions. The Iranians really didn’t want China to come in and play a dominant role in the economy after the JCPOA was agreed, they wanted a balanced set of political and economic ties and, in particular, they wanted European companies and European expertise in the energy sector. Now their options will shrink, given how exposed the Europeans are to the US market.

Politically, any Chinese efforts to support Iran economically will be very much aligned with the international consensus – the Europeans, the Russians, India, Japan and many others still want to see the deal hold, even if the Saudis and the current Israeli government don’t. Some Chinese companies will also draw back – US financial sanctions affect them, too – but this will generally be a chance for Beijing to argue to Tehran that they represent Iran’s only reliable economic partner.

BRR: How do you think the United States will act to keep itself relevant in this region, given the growing Chinese influence in South Asia, Central Asia and Eurasia?

AS: I don’t think the United States has to worry about being relevant; the question is whether it ends up confined to playing a security role while China becomes the dominant economic actor, though I don’t see too much concern about even that. There is a sort of mirrored debate in Beijing and Washington that can loosely be characterized as Mackinder vs. Mahan. Some US policymakers are perfectly happy to see China drawn into deeper commitments in continental Asia, which they see working at the expense of China’s global power position, not augmenting it. If Chinese economic initiatives help to stabilize the region, great, good luck to them, if not, there are some benefits that would ensue to the United States if Beijing is drawn further into the region’s instability too.

Many Chinese policymakers have precisely the same fear and also see the maritime space – and various advanced technological frontiers – as the serious games in town, with Eurasia functioning more as a potential liability.

There are Chinese who see it as an opportunity – that China can expand its presence in continental Asia as the US draws down, and do so with US acquiescence or even support. And the Belt and Road itself – with its maritime and continental elements – effectively tries to take on both aspects at the same time. But I still see a lot of Chinese wariness about taking on greater political and security commitments in Eurasia, and, if anything growing Chinese enthusiasm about the United States continuing to play a counter-terrorism role in Afghanistan over the longer term.

Copyright Business Recorder, 2018

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